RBI to roll back rupee steps in Q4: Barclays

Barclays expects the Reserve Bank of India's ( RBI) cash tightening steps to be rolled back only in the December quarter as the central bank wants to avoid showing a lack of resolve about its measures by reversing them too soon.

"Having adopted these measures, the RBI will likely find it difficult to quickly reverse them, as that could be seen as a lack of resolve on the part of the RBI to support the currency and could be an additional risk for the rupee."

Barclays also downgraded India's GDP growth forecast to 5.3 per cent for 2013/14 fiscal year from 6.0 per cent. The bank also pushed back their 75 basis point rate cut expectations to December 2013-April 2014 from September-December 2013 following the RBI's cash tightening steps.

Earlier in the day, the RBI Governor Duvvuri Subbarao said that the central bank would roll back recent cash tightening measures only after it determines stability has been restored in the foreign exchange market.

"In the Reserve Bank's view, undue volatility of the exchange rate is harmful for growth and stability, and such volatility should be curbed," Subbarao said.

Last month, the RBI raised short-term rates and also placed restrictions on banks to borrow from the RBI to make funds costlier for stemming the rupee's decline.

The rupee which touched its lifetime low of 61.21 to the dollar on July 8, has been the worst performer in emerging Asia so far this year.